Death of an ocean carrier

Several months after filing for court receivership in its native South Korea, former seventh-largest container carrier Hanjin Shipping has officially been declared bankrupt, according to a report from Reuters news service.    It’s all over but the crying.
   A bankruptcy court in South Korea has officially declared Hanjin Shipping Co. Ltd. bankrupt after finding the troubled ocean carrier’s liquidation value was higher than its value as a continuing operation.
   According to a report from Reuters news service, the Seoul Central District Court said in a statement it has chosen a bankruptcy administrator, with claims by creditors due by May 1, 2017, and the first meeting of creditors to be held on June 1, 2017.
   “The court will, through the bankruptcy process, make efforts so the maximum of debt repayment will be conducted in a way that is fair and balanced to the creditors,” it said.
   Once the largest container carrier in Korea and seventh-largest in the world, Hanjin had been on life support since filing for court receivership in its native Korea in late August 2016.
   Initially, Hanjin said it wanted to “seek normalization through commencement of company reorganization,” but its financial condition was so poor that its auditor, Samil PricewaterhouseCoopers, recommended to the court that the carrier be liquidated, rather than restructured.
   For many industry analysts, however, the writing was on the wall long before that.
   Leading up to the filing, Hanjin had taken considerable losses and its $5.4 billion debt load nearly eclipsed the book value of its assets, which was already inflated compared with actual market value for those assets.
   But Hanjin was not alone. Rates across the ocean carrier industry have plummeted in the last 18 months to below operating expenses on many trade lanes.
   Federal Maritime Commission (FMC) Chairman Mario Cordero said at the time that not only was he not surprised by Hanjin being forced into court receivership, but that the container shipping industry needs to be prepared for future carrier bankruptcies.
   “We cannot be in a situation again where we don’t know what to do,” he said in a speech to the National Customs Brokers and Forwarders Association of America’s (NCBFAA) Government Affairs Conference. “It’s no surprise we’ve had a bankruptcy of a significant carrier.”
   The filing in Korea brought Hanjin’s operations to an immediate standstill, and threw the supply chains of shippers and NVOs with cargo on board its vessels into complete disarray. Thousands of containers were stranded on 96 ships forced to wait offshore for fear they could be seized by creditors if they entered port.
   Once a bankruptcy court in Newark, N.J. recognized the Korean court proceedings under Chapter 15 of the U.S. bankruptcy code and ruled the firm’s vessels could not be arrested, ships were able to berth and cargo began to come ashore. But then there was the problem of how to get it off the docks without payment from Hanjin, and what to do with the empty containers once the cargo had been removed, since Hanjin certainly wasn’t coming to get them any time soon.
   Many of Hanjin’s assets, which included bulk vessels and port terminals in addition to containerships, have already been sold, or returned to owners in the case of chartered ships.
   Smaller South Korean rival line Hyundai Merchant Marine (HMM), which went through a court ordered financial restructuring of its own last summer, has been snapping up Hanjin terminal assets and said its share on the transpacific trade between Asia and the U.S. has jumped from 4.9 percent in January 2016 to 7.5 percent in January 2017.
   And SM Line, a new subsidiary of Korean bulk shipper Samra Midas Group, purchased a handful of Hanjin containerships it plans to deploy on the transpacific in April, although the firm has yet to publish full details of the planned service.
   The collapse of Hanjin is the largest bankruptcy in ocean shipping history, not only in size, but also complexity. As a member of the CKYHE Alliance vessel sharing agreement, Hanjin’s problems impacted partners COSCO, “K” Line, Yang Ming and Evergreen Line, which mutually shared space on ships. Many of those companies sprang into action immediately in order to protect their customers, refusing to load cargo on Hanjin ships or load Hanjin cargo onto their vessels, but the damage had already been done.
   The sheer magnitude of the disruption has already caused shippers to start rethinking their supply chains in order to avoid overexposure to any one carrier or alliance, but this will prove more and more difficult as the industry continues to consolidate via mergers, acquisitions and a restructuring of the alliances from four to three in April.
   And who knows, with rates still far below profitable levels and no relief in sight due to severe overcapacity in the major global trades, we may even see another carrier go belly up before all is said and done.